Shell's $4.5bn Alaskan adventure is a comedy caper

Six years in the making, the oil giant's farcical Alaskan exploration is not
what you'd expect from a FTSE-100 company.

Work suspended: a Shell drilling ship in the Chukchi Sea

8:39PM BST 17 Sep 2012

What next? A polar bear attack?

Maybe Shell chief executive Peter Voser and his intrepid Alaskan explorers have a secret plan to sell the film rights. You know, produce a rival to the Ice Age series, only funnier. And with a different sort of cast – a 36-year-old oil spill barge, the US Environmental Audit Committee and, unbelievably, blocks of ice turning up in the Arctic of all places.

Whatever, Voser’s $4.5bn Alaskan drilling blockbuster is turning out to be a right comedy caper. Everyone knows why Shell is there: Alaska’s one of the last great exploration frontiers, home to around 6pc of the world’s recoverable oil. But six years in the making, Shell’s adventure in the Chukchi and Beaufort seas is not what you’d expect from one of the biggest companies on the planet.

Take this year alone. First, the ageing Noble Discoverer drill ship sets off late from New Zealand for a drilling season already cut short by the US Bureau of Ocean Management. Then, Peter Velez, Shell’s head of Arctic emergency response, lists a bit in front of the US environment committee, admitting he has not costed a clean-up operation.

Skip on a bit and you find the Noble vessel finally back in operation for one whole day in the Chukchi sea – before being forced to stop last week by ice. Meanwhile, Shell’s other drill ship, the Kulluk, finds itself unable to drill in the Beaufort due to the Eskimo whaling season.

Now yesterday’s missive: that Shell has called it quits for the year in Alaska thanks to more issues on the barge front, namely damage to its “containment dome”.

Yesterday, the company declared: “This exploration program remains critically important to America’s energy needs, to the economy and jobs in Alaska, and to Shell.” But clearly not that “critically important” – or Voser would get the sack.

Only politicians, not shareholders, stand in the way of EADS's Tom Enders

WHAT do you call EADS’s minority shareholders? Collateral damage.

Just a few days into the great EADS/BAE Systems merger saga, one thing is already clear. Here is the first £30bn tie-up that will be decided by politicians – not shareholders. True, theoretically both BAE’s and EADS’s investors could block the deal. Indeed, BAE is likely to need 75pc of the votes and EADS two-thirds. But EADS chief executive Tom Enders, the ex-paratrooper driving the deal, knows investors are the least of his worries.

BAE’s will vote in favour – because they’d be mad not to, given how much Enders is giving away. BAE is getting 40pc of the enlarged group when, on pre-leak valuations, it deserved 35pc.

And, in the short-term at least, all the earnings growth is coming from EADS’s main business – aircraft maker Airbus. Enders wants BAE because defence balances out cyclical aviation. But he’s timed the deal when Airbus not only has a £400bn order backlog but is also just about to see higher operating margins. They’re just 3pc now, way off management’s target of 10pc. But analysts are pencilling in 7pc for EADS by 2014 – not to mention £2bn of free cash flow.

By contrast, BAE’s profits are going nowhere for three years. Sure, it’s a higher margin business right now. But while, on Societe Generale forecasts, BAE’s operating profits are stuck around £1.8bn for the next three years, EADS’s rocket from a similar figure to £3.3bn.

And that assumes the US defence cuts, to which 40pc of BAE’s sales are exposed, don’t turn out worse than expected. There’s still a risk of “sequestration”, basically a forced $600bn cut to the defence budget by 2021 to help balance the US’s books.

All that explains why £3bn has gone from EADS’s market value since the talks leaked last Wednesday. But if Enders convinces the French, German and Spanish governments to back him, that looks enough. The trio control just over 50pc of the shares – enough to get over a two-thirds threshold, given how widely the other shares are held, and with many investors unlikely to vote.

Only the politicians can stop Enders now.

Greggs shows an army marches on its stomach

GO to war on a Greggs’. Fresh from doing over George Osborne on the pasty front, the high-street baker is opening a new one in Germany.

It’s been taken into the establishment by the NAAFI with a deal to supply “seven frozen savouries, including sausage rolls, steak bakes, chilli bakes and sausage & bean melts”. Troop demand, apparently.

An army marches on its stomach and all that. But you wonder how quickly, given some of these tasty snacks weigh in at 450 calories a pop. Still, the chosen base looks well-named for any squaddie worried about the waistline: Gutersloh.